Winning the war for talent in China’s “new normal”The growth of digital business and shifting demographics are reshaping

the competition for top leaders in China.

HUMAN RESOU RCES OFFICERS P RAC TICEASIA PACIFIC AND MIDDLE EAST REGION

2 Winning the war for talent in China's “new normal”

After years of runaway economic

expansion, China has settled into a “new

normal” driven by lower economic growth,

higher costs, stricter regulations, and

the disruptive pressures of e-commerce.

As a result, companies operating there

are finding it ever more challenging to

attract the leaders they need. Thriving in

this environment will require executives

to recalibrate not only their business

strategy but also their approach to talent

recruitment and management.

In theory, additional talent should be available as growth

slows in sunset industries such as heavy industry and low-

value manufacturing for export. Yet leaders of multinational

corporations (MNCs) in China still consistently cite talent

among their top concerns due to a shortage of skilled

workers and high attrition rates.

China’s demographic trends explain some of this challenge.

Workforce numbers are declining as the one-child

generation starts to enter the management pool. According

to China’s National Bureau of Statistics, from 2014 to 2015

the number of workers aged 16 to 59 fell by nearly 5 million

people, its biggest decline ever.1 In addition, the continued

exodus of educated professionals seeking opportunities

outside of China in search of better air quality and lifestyles

drains the talent pool further. In 2014, for example, more

than 76,000 Chinese were awarded permanent residency

status in the United States, up by more than 4,200 from the

previous year.2 While this number is small when viewed

against the nearly 800 million–strong Chinese workforce,

it is a telling indicator nonetheless. Collectively, these

trends provide some insight into the growing gap between

demand and supply of experienced executives.

1 Laurie Burkitt, “China’s working-age population sees biggest-ever decline,” Wall Street Journal, January 22, 2016, blogs.wsj.com.

2 Murong Xuecun, “China’s middle-class anxieties,” New York Times, May 10, 2016, nytimes.com.

3 “China’s most attractive employers—Trends and rankings,” universumglobal.com/rankings/china/.

The local labor pool is improving, but competition is intensifyingThe quality of local executives has risen rapidly in recent

years, with candidates touting improved educational

qualifications, language ability, and management skills.

In our experience, MNCs in some sectors are accelerating

their efforts to localize the leadership of China operations.

We find that more than 50% of the lead positions with

jurisdictional authority over China are now filled by Chinese

citizens, many of whom also serve as executive officers

within their global business.

Polly Yip, head of human resources for KPMG China,

notes that local leadership is essential for understanding

the Chinese business environment and regulatory

requirements. Accordingly, many global organizations have

adjusted their executive teams over the past decade. “From

a professional services perspective, KPMG is doing the right

thing to localize most positions,” Yip says.

The entry of many Chinese companies, both state-owned

and private, into the global arena has intensified the

competition for top leaders with the right skill set. For

many years, Western MNCs were the employer of choice

for talented Chinese executives. Now many Chinese

companies—in particular, privately owned ones—are the

more sought-after employment option. As recently as

2012, Apple, a Western company, topped the list of most

attractive employers for students in several disciplines. By

2015, however, Chinese brands had taken the top position

in all areas except health and medicine.3 In recent months,

Alibaba, Baidu, Huawei, and Xiaomi have all made headlines

by poaching leaders from global competitors. With this

heightened demand, the need for qualified executives will

continue to rise as competition for talent shifts into high

gear in the coming years.

This transformation is under way partly because forward-

looking Chinese companies have recognized the value

of talent management (for more about how Chinese

Heidrick & Struggles 3

4 Trefis, ”Why is Alibaba strengthening its O2O (online to offline) presence?,” Forbes, December 31, 2015, forbes.com.

5 Daniel Zipser, Yougang Chen, and Fang Gong, ”Here comes the modern Chinese consumer,” McKinsey & Company, March 2016, mckinsey.com.

companies approach HR, see “Prioritizing HR to succeed in

China,” on heidrick.com). Many leaders seem to have gotten

the message and are beginning to reward employees

based on their performance, provide long-term career

opportunities, and offer a greater degree of autonomy and

decision-making authority. As evidenced by the experience

of privately owned enterprises, companies that embrace

the importance of these factors will find it easier to attract

and retain talent.

In addition to these value-adding offerings, local

companies that reach global scale can offer access to senior

management roles overseas that might not be available to

Chinese executives working for an MNC.

New skills neededThe most sought-after skills in China’s new normal economy

are evolving rapidly. A successful China business leader

needs to have the right mix of local and global experience,

gravitas, and the ability to work well with a wide range

of colleagues. However, companies are also seeking

seasoned managers who can adapt as business models in

multiple sectors are disrupted by fast-moving technologies,

from e-commerce and the Internet of Things to artificial

intelligence. In our experience, these skills often don’t go

hand in hand.

Finding executives who can navigate these trends is

increasingly vital. HSBC projects that China’s online-to-

offline market—for example, mobile apps that connect

customers to local restaurants or process payments—is

worth $150 billion and currently has just 4% penetration.4

Digital giants such as Alibaba and JD.com have been adding

online-to-offline services to their portfolios by investing in

online platforms and physical retailers. New online services

are also thriving, with mobile payment penetration vaulting

from zero to 25% of the population from 2011 to 2015.5

With innovation and digital transformation on practically

every company’s agenda, managers must also be sensitive

to the shifting perceptions and loyalties of China’s

new breed of digital consumer (see sidebar, “Reaching

consumers in China’s new normal”). 1 Gordon Orr, “Preparing for China’s middle-class challenge (Part 1),” McKinsey & Company, March 31, 2014, mckinseychina.com; Dominic Barton, Yougang Chen, and Amy Jin, “Mapping China’s middle class,” McKinsey Quarterly, June 2013, mckinsey.com.

Reaching consumers in China’s new normalOver the past decade, China’s growth has

been based primarily on a robust platform

of low-cost export manufacturing and massive

investments in infrastructure. As costs have risen and

China’s economy has diversified, the country’s leaders have

set out to rebalance the economy by shifting toward growth

that is fueled more by domestic consumption.

China’s consumers have long been a subject of intense

interest due to the sheer size of the population. McKinsey

projects that China’s middle class will expand dramatically,

to 630 million people by 2022, with the urban middle class

consuming goods and services valued at $2.8 trillion.1

Young consumers will account for much of this activity as

major purchasers of home and lifestyle products, leisure

and travel, and personal services.

The role of e-commerce is also an essential element of

reaching the new middle class. Smartphones are ubiquitous

and the reach of platforms such as Alibaba and Taobao is

unrivaled. On November 11, 2015 (Singles’ Day in China),

for example, Alibaba sold $5 billion worth of goods in 90

minutes and a record $14.3 billion throughout the day.

4 Winning the war for talent in China's “new normal”

Brands that were popular a few years ago are rapidly

becoming unfashionable. Managers must think quickly

and creatively in order to transform traditional brands to

meet the needs of today’s consumers. In a recent roundup

of the most laudable traits of China’s business leaders, the

Harvard Business Review highlighted a willingness to “jump

into white spaces, undeterred by lack of experience.”6 B2B

leaders, then, should look beyond their boundaries and

adopt a B2C perspective to anticipate and keep abreast of

evolving trends and changing customer behavior.

The dynamic market means more and more executives

are studying trends in other sectors. Consequently, the

movement of talent in China across sectors is increasingly

common. As Chinese companies grow in size and

sophistication, they are also becoming more successful

at bolstering their recruiting efforts with mid-career

professionals; these people have been trained by MNCs

and are now competing for the same pool of talent

across disciplines. Recent cases of executives moving

from traditional fast-market consumer goods companies

to online platform businesses demonstrate how local

enterprises can win over seasoned MNC managers.

Manage up, manage down Finally, the new normal dictates that the leaders of an MNC’s

China businesses must be skilled at managing up as well as

down. When China contributed only a small, albeit faster-

growing, proportion of global sales, the general managers

of an MNC’s China operations could run things more or less

as they saw fit without drawing too much attention from

headquarters. Now, with China contributing a much larger

proportion to the bottom line of many MNCs—our survey

of senior executives in the Asia Pacific region found nearly

40% reported that “China revenues represent 10% to 30%

of their company’s total global earnings”—headquarters is

likely to take a much more active role. China managers must

now justify their actions and hew closer to global practices

and standards while simultaneously keeping the

local team motivated.

With this shift, China managers must be sensitive to

employee job satisfaction and ensure the local team stays

competitive. In the current volatile, uncertain, complex, and

ambiguous (VUCA) business environment, global strategies

may not be easily transferrable to local situations. Leaders,

then, need to have the skills to influence, persuade, and

lobby stakeholders as well as the knowledge of cultural

nuances to ensure staff feel respected and fulfilled.

Talent strategies for China’s new normal Many MNCs are realizing that they need to upgrade their

approach to people management in China. Three strategies

can position MNCs to succeed in China’s new normal.

Broaden your search

External talent can bring new ideas and aptitudes

to reenergize people, strategies, and systems. KPMG

understands the value in looking outside traditional

channels for this sort of experience. “In the past 10 years,

we primarily sought people with backgrounds in financial

services for our advisory service,” says Yip. “Now that we’re

extending service lines and sectors, we will look to hire

more and more candidates with experience in areas such as

biotechnology, science, and engineering.”

Especially with the increasing importance of e-commerce,

bringing in essential knowledge or skills from outside the

industry is one way to build the required talent portfolio. In

addition, allowing people to work outside their traditional

roles can not only bring more diverse perspectives to a

team but also enhance a position’s appeal.

Focus on corporate culture

In a new survey by Heidrick & Struggles of more than 150

senior executives in China,7 Chinese respondents picked

“attractive culture” and “high quality of senior leadership”

as the most important factors in making a company a good

place to work—above “a competitive employment offer.”

6 Thomas Hout and David Michael, “A Chinese approach to management,” Harvard Business Review, September 2014, hbr.org.

7 Heidrick & Struggles, ”Employer branding in China,” 2016 (forthcoming).

Heidrick & Struggles 5

Indeed, monetary compensation consistently ranked below

opportunities to enhance skills and advance careers.

But what exactly constitutes an attractive culture?

According to the survey, Chinese executives emphasized

the importance of an employer that recognizes high

achievers and encourages new ideas and diverse thinking.

In defining high-quality leadership, respondents placed

a premium on corporate leaders who are charismatic,

inspiring, and credible spokespeople for their companies.

Building an attractive culture has practical implications

for the management of a company’s China operations.

Global headquarters must work to understand the dynamic

requirements of China’s new normal and, consequently, the

kinds of pressures facing their managers on the ground.

Rather than making decisions from afar, headquarters must

give high-potential talent the latitude to move quickly.

Show a clear route to the top

Our survey data also indicate that to attract senior

Chinese leaders, MNCs need to emphasize to potential

hires that they will be able to reach the highest levels of

the organization. Other research—including interviews

conducted by Heidrick & Struggles for this article—suggests

that many MNCs struggle to provide local candidates with

a clear path up the ladder. Some executives cite a glass

ceiling that causes local staff to build up experience at an

MNC before leaving to join local organizations for more

opportunity. MNCs, therefore, need to build stronger career

paths for local staff to encourage them to stay at

the company.

A more targeted approach to nurturing senior leaders

should include regular performance appraisals, clear

pathways to promotion, and specific development targets

such as skills building or overseas assignments. “Especially

for high-performing talent, you need to show them you

listen, care, and understand their career aspirations,” notes

Yip. “They need to know precisely what it takes to be a

partner or director.”

To address concerns of talent and enhance loyalty,

global leaders should put mechanisms in place to

avoid unconscious bias in hiring decisions. For instance,

companies could require local candidates in China to be

included on the list for top jobs. Giving these employees

their due takes commitment as well as a focus on local

performance. By understanding cultural differences, leaders

can better grasp the challenges of local managers and learn

how to communicate more effectively, which can empower

staff to perform their best and outpace local competitors.

Addressing cultural nuances, taking a personal interest in

staff development, and adapting expectations and goals is

likely to be the ticket to success.

***

China’s economy is changing rapidly thanks to the growing

purchasing power of the expanding middle class and the

digital disruption of multiple sectors. It is little wonder

that competition for top Chinese talent—especially in

fast-growing China-based companies—is becoming ever

more intense. MNCs that can build strong leadership

teams and an attractive culture—while demonstrating

the opportunities for advancement to high-caliber local

talent—will be more likely to attract the leaders they

need to compete in the next phase of China’s

economic transformation.

About the author

Linda Zhang (lzhang@heidrick.com) is partner-in-charge

of Heidrick & Struggles’ Shanghai office and leads the firm’s

Human Resources Officers Practice in China.

Recommended reading on heidrick.com:

• Prioritizing HR to succeed in China

• What are your employees really saying about you?

• Who do China CEOs report to?

6 Winning the war for talent in China's “new normal”

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Arun Das Mahapatra Mumbai adasmahapatra@heidrick.com

Guy Farrow Sydney gfarrow@heidrick.com

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